Sri Lanka’s external sector continued to recover in relation to many aspects during August 2020, mainly supported by an improved trade deficit and a notable increase in workers’ remittances, the Central Bank announced last week.
The trade deficit improved on a year-on-year basis, with the reduction in merchandise imports due to regulatory restrictions on the importation of non-essential goods and lower crude oil prices, despite earnings from merchandise exports recording a year-on-year decline during the month.
Nevertheless, the export performance remained strong for the third consecutive month in spite of the pandemic affected global demand. Workers’ remittances recorded a substantial growth in August 2020, strengthening the current account. In the financial account, marginal foreign investment outflows were recorded from the government securities market, while the Colombo Stock Exchange (CSE) also recorded some foreign investment outflows during the month.
With increased net inflows to the domestic foreign exchange market, the Central Bank was able to absorb foreign exchange during the month to build gross official reserves. The Sri Lankan rupee, which had some volatility in mid August, stabilised towards the end of the month.
The deficit in the trade account in August 2020 narrowed to US dollars 342 million from US dollars 541 million in August 2019, as imports declined at a faster pace than the decline in exports. Also, on a cumulative basis, the trade deficit narrowed by over US dollar one billion to US dollars 3,812 million from January to August 2020 from US dollars 4,855 million in the corresponding period of 2019.